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www.abplgroup.com - Asian Voice 28th March 2015
Dear Financial Voice Reader, Why is now a great time to invest in British companies? A question that almost every trader and investor in the UK has in mind is quite simply "where's the FTSE 100 headed a few weeks down the road?". I know this because from all the people I meet on various occasions this is the most usual question. To put it in simple words so we can really drill down to the core essence of it: is the FTSE 100 headed higher over the medium term or not? I will keep this plain and tidy because I know that many readers will find this analysis helpful. So here it goes, the FTSE 100s’performance is influenced by roughly three forces: the performance of the British Pound, the interest rate policy and the performance of the other global indices, namely the major US stock markets. So starting with the British Pound, we can assess that the Sterling has been trading relatively sideways against its counterparties in recent times. It has declined against the US Dollar and I think it will continue to do so but at the same time it has appreciated versus the Euro and I believe this trend will continue, especially with the Euro-zone now undergoing another easing program. So to sum it up, I expect the Pound to remain flat on average against the other currencies. Thus I expect no pressures upwards or downwards on the FTSE from the Pound. Now taking a look on the matter of the interest rate policy and the Bank of England's intentions on it we know what they intend to do: raise the interest rates. But we also know that they won't do it soon due to two reasons: the domestic progress is not yet sufficient and also they would want to wait for the US Federal Reserve Bank to go first. And the Fed will most likely pull the trigger after June so no rate change from the BoE is expected either before that. As long as the Bank of England leaves the interest rates at their current levels we know that this is a bullish indicator for the stock market as investors love cheap money supply. Hence we can count that as a precursor towards further gains for the FTSE 100 at least until the BoE becomes more serious about a rate hike. But what about the US stock markets and their correlation with the domestic stock index? It is true that the FTSE 100 takes its cue from the US markets most of the time as the investment sentiment is a global affair nowadays. And as I mentioned above Fed's reluctance to hike their interest rates means that the likes of Dow Jones and co. will have more room to grow to the upside. Alpesh Patel Asian Voice readers get 33% off my FX online training course: www.udemy.com/tradefx4profit (coupon code: AsianVoice1)
India overtakes US as 3rd biggest steel producer
India has overtaken the US to become the third-biggest steel producer in the world with a production of 14.56 million tonnes (MT) in first two months of the year. India has been the fourth-biggest steel producer for the past five years, behind China, Japan and the US. Data compiled by World Steel Association (WSA) showed that India’s production growth was the highest during the January-February period at 7.6 per cent as compared to the global average of just 0.6 per cent at 127.6 MT. Production in China, which accounts for nearly half of the global steel production, fell during the period by 1.5 per cent. It produced 65 MT steel during the period. Japan, the second-largest producer, reported a total output of 17.4 MT, but production in
the country fell 2.2 per cent. The US, which was the third-largest steel producer since 2010, produced 13.52 MT during the January-February period, giving away its position to India. On a yearly basis, India may retain the position given the fact that a lot of capacities are set to be commissioned during the year from its present installed manufacturing capacity of a little over 100 MT. Production in the US, on the other hand, is heading for a stagnation with no signs of growth in the immediate future. Output in the US has been hovering between 86 MT and 88 MT for the last four years. The gap of production between the two countries was just 5 MT last year. Interestingly, the US snatched the third slot from India in 2009.
FDI in India doubles to $4.48 bn in Jan Policy and Promotion (DIPP). The inflows were at USD 18.74 billion during the same period a year ago. Amongst the top 10 sectors, telecom received the maximum FDI of USD 2.83 billion in the 10month period, followed by services (USD 2.64 billion), automobiles (USD
2.04 billion), computer software and hardware (USD 1.30 billion) and pharmaceuticals (USD 1.25 billion). During the period (AprilJanuary), India received the maximum FDI from Mauritius at USD 7.66 billion, followed by Singapore (USD 5.26 billion), the Netherlands (USD 3.13 billion), Japan (USD 1.61 billion) and the US (USD 1.58 billion). In 2013-14, FDI stood at USD 24.29 billion as against USD 22.42 billion
a year earlier. Healthy inflow of foreign investments into the country helped India's balance of payments (BoP) situation and stabilized the value of rupee. India is estimated to require around USD 1 trillion over five years to overhaul its infrastructure sector, including ports, airports and highways to boost growth. Government is taking steps to boost FDI in India and has relaxed norms in sectors, including insurance, railways and medical devices.
The Narendra Modi government unveiled a set of stringent provisions, including a 90% penalty on those who have undisclosed foreign assets and income overseas as it introduced a Bill to deal with black money stashed abroad. This will be above the 30% levy on the value of assets or income that will be imposed. But those who want to avoid the hefty penalty will be given the option to pay 30% penalty of the value of undisclosed assets and avoid prosecution, the Undisclosed Foreign Income and Assets Bill introduced in the Lok Sabha proposed. Although the government wants the law to be active from April 2016, it has not specified how long the one-time compliance window would be open. The Bill has also detailed safeguards to prevent any mis-
use of the stiff provisions by tax authorities. Apart from penalty, the bill provides imprisonment of up to 10 years for concealment, non-disclosure, false declaration as well as abetment. The provision for abetment can put financial advisers and chartered accountants in the crosshairs of the law should they be deemed guilty of cooking the books. “It's not an amnesty scheme because under amnesty you only pay tax, and no penalty. Here the requirement is to pay tax at 30% and equivalent 30% as penalty. The intention of the government is not to give a soft landing facility to anyone. The one-time compliance opportunity is to enable such people who have hidden assets abroad to come clean and avail of the opportunity. It is not a rev-
enue mobilization measure,” revenue secretary Shaktikanta Das said. Asked about the time frame of the compliance window, Das said it would be notified after the passage of the bill. The Bill, was announced by finance minister Arun Jaitley in his budget speech on February 28, as the BJP government moved to smother the criticism of going soft on black money, a key poll plank during the 2014 general elections. The Bill is the latest move to get money stashed overseas back into India, even as the tax department has also asked its officers to focus on illegal wealth within the country as well. Apart from the penalty, the legislation also lists a 10-year jail term for “wilful attempt to evade tax.” Anyone who possesses or controls documents or
books of accounts with false entries or statement, wilfully omits entries or statements in the papers, or takes steps that result in tax evasion will be treated as wilful evader. “In the prosecution proceedings, the wilful nature of the default shall be presumed and it shall be for the accused to prove the absence of the guilty state of mind,” the government said. Further, the Bill has proposed imprisonment of six months to seven years for failure to provide details of foreign assets and income, or interest in a overseas entity, in tax returns as well as for making false statement. A similar term is proposed for those abetting making of false statement, a move that will impose a burden on chartered accountants and financial advisers who are often involved with overseas transactions.
When most of the illustrious names in grocery chains like Carrefour of France, Tesco of Britain and Walmart of the United States, are making a retreat from their overseas forays, two German chains, Aldi and Lidl are making it big in their international expansion. They are now the world’s biggest “deep-discount” grocers, offering mostly their own brands of goods and almost no premium-priced products. The Schwarz Group, which owns Lidl as well as a hypermarket brand, Kaufland, is also Europe’s biggest retailer. As mainstream supermarket groups contract, in Europe especially, the German duo continue to eat up market share. So, how far can they go? In their home market their position is strong, though far from dominant.
Their combined share of sales among German foodretailing chains was just over a quarter last year. Aldi (which is divided into two legally separate but co-operating companies, Aldi Nord and Aldi Süd) had 14.8% and Lidl 10.9%. In Europe as a whole they are still relatively small: Aldi has a 3.3% share of sales and Lidl 3.8%. In Britain where the two increased their sales by 22.6% and 15.1% respectively last year - their combined share is now 8.5%. Aldi, which already has 600 stores in Britain, aims to have about 1,000 outlets by 2022. Aldi’s performance in Australia has been impressive. The discounter opened its first store there in 2001 but already has about 10% of the grocery market on the eastern seaboard. It recently
announced plans to spend A$700m ($530m) on distribution centres and outlets to expand into southern and western Australia. In America, Aldi has been quietly growing for decades. Aldi Süd has 1,375 stores under its own name, mainly on the east coast, but has expanded into Texas, Florida and California. Aldi Nord operates 435 shops in America under the name of Trader Joe’s. Together they have just 1.7% of the national market. But in 2013 the group announced a $3 billion expansion plan, to add 650 Aldi-branded stores. Lidl had planned to enter the American market this year but has postponed this until 2018. Despite the impression of relentless expansion, Aldi is picky when it looks abroad. It only “seeks out countries where returns
on groceries are significantly higher than global averages,” explains Paul Foley, a former head of Aldi UK. Usually this is because the local market is dominated by a few giants. Britain is one such place. Australia is another: Aldi has muscled in on a cosy near-duopoly between the Woolworths and Coles chains. In America, Aldi started out in those states and regions where market conditions were similar. As a family-owned, private company, with no need to appease outside investors, Aldi grows slowly and organically, Foley explains, “to suck the profitability out of the industry in favour of the consumer.” This is not the only way in which its strategy is self-limiting. Aldi is highly protective of its reputation as a squeaky-clean, familyowned business.
Foreign direct investment (FDI) in India more than doubled to USD 4.48 billion in January, the highest inflow in last 29 months. In January 2014, India had received USD 2.18 billion in FDI. It was in September 2012 that India had attracted FDI that was worth USD 4.67 billion. During the AprilJanuary period of the current fiscal, the foreign inflows have grown by 36 per cent, year-on-year, to USD 25.52 billion, according to data from Department of Industrial
India unveils stiff law for black money stashed abroad
The success story of Aldi and Lidl